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State pension to rise by 2.5%

written by Bella Palmer
state-pension

The rise is likely to come into effect if September inflation figures remain low

Retirees look set to see their state pension boosted by 2.5% as coronavirus forces the triple lock guarantee into effect.

The increase - which would see the "new" state pension boosted by £230 a year - is likely to come into force if September inflation figures remain low.

The triple lock is a legal guarantee that ensures the state pension will rise by at least 2.5% each year.

Its calculation is based on whichever is higher out of consumer prices index (CPI) inflation, earnings growth or 2.5%.

The government usually uses inflation in September, and average earnings in the three months to July, to determine how much pensions go up by in April the following year.

Experts are predicting that CPI in September will remain close to 0% due to coronavirus, with figures set to be released this Wednesday, October 21.

The inflation rate plunged to 0.2% in August - far off the government target of 2% inflation.

Average earnings, meanwhile, were down 1% for the three months to July - meaning the triple lock guarantee is likely to come into force.

Tom Selby, senior analyst at AJ Bell, said: With Covid-19 hammering wages and pushing inflation to almost 0%, the value of the state pension triple-lock has never been clearer. If it were not for the policy, pensioners would likely see their state pension frozen next year.

As it is, retirees are set to benefit from a 2.5% state pension boost in 2021/22, adding £3.40 a week to the value of the ‘old’ basic-rate state pension and £4.40 a week to the ‘new’ state pension, Selby said.

This would be the fourth time the 2.5% triple lock has kicked in since the policy was introduced in 2011.

The full new state pension is £175.20 per week, while the previous full basic state pension was £134.25 per week.

If the triple lock comes into force, the new state pension will rise by £4.40 a week to £179.60.

The old basic state pension will increase by £3.40 a week to £137.65.

The expected rise comes as the pension age for men and women has increased to 66 on October 6, up from 65.

The change applies to anyone born after October 5, 1954, and it means they will now have to wait a year longer before they can access their state-paid retirement fund.

For some women, this will be six years after they were originally told they would be able to claim their retirement fund aged 60.

From 2026 to 2028, the state pension age is going to rise again to 67 and it could go up to 68 between 2037 and 2039.

Important:

This article is for information purposes only.

Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.

There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

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